FLINT, Michigan — The city improperly managed portions of a federally funded housing program during at least the past five years, spending more than $2 million on ineligible costs, according to a new draft report.

City officials said they’ve taken major steps to overhaul the program in response to the draft audit report from the U.S. Department of Housing and Urban Development. It recommends the city make significant changes or reimburse up to $2.4 million.

Among other findings, the report said the city lacked oversight and documentation related to its HOME Investment Partnership Program and inappropriately used funds for ineligible projects and administrative expenses.

In some cases, reported renovation projects turned out to be vacant houses or couldn’t be found at all, City Administrator Gregory Eason said. In other cases, the city didn’t make follow-up visits to ensure HUD guidelines were followed, he said.

The audit’s final recommendations could deliver another financial blow to the cash-strapped city, which relies on the federal funds to help renovate its housing stock for low-income residents.

A final report on the matter is expected to be issued after federal officials review the city’s written response to the draft.

Eason said the amount of funds at risk could be “substantially” reduced based on the city’s changes, but that it’s likely Flint could lose or have to pay back hundreds of thousands of HOME grant dollars.

“We didn’t have the appropriate checks and balances in place to ensure we were doing things right,” he said. “In some cases, a lot of shoddy work was done. In some cases, the work was not done.”

The federal HOME program is intended to increase the supply of affordable standard rental housing; improve substandard housing; provide rental assistance; and assist new homebuyers. The money is granted by the federal government for housing-related projects only and cannot be used for city services.

Since 2005, the city has received $4.8 million for the program, according to the internal report, which was obtained by The Flint Journal.

The 37-page draft audit from HUD’s Office of Inspector General mainly covered projects from July 2007 through August 2009 but also included projects dating to 2000 and as recent as April.

The auditor found several problems with the city’s oversight of projects done by third-party service providers and how it used the funds.

In one case, the city gave a service provider $24,600 in March 2009 to purchase a property that was appraised at only $12,000. In another case, the city gave $155,312 to an engineer from July 2007 to June 2008 for services relating to an ineligible project.

The report also said the city didn’t ensure that the owners of a federally funded housing complex followed HUD requirements on its lease agreements and did not cancel spending or reimburse funds from projects that never were completed.

City Council President Delrico Loyd said many of the issues occurred before Flint Mayor Dayne Walling’s administration came into office in August 2009, but the city needs to work to correct the issues so it doesn’t endanger future federal grant awards.

“Right now, we have to make good on using the money we have,” he said. “We can’t afford to lose one dollar — there’s too much money being lost out the door when all over the city you can see the need.”

A HUD spokesman declined to comment on the report because it’s not final.

The draft audit report was issued in August. Eason said the city, in its response to the report, disagreed with at least one of the findings of improper oversight of a project.

Federal audit officials are expected to review the city’s response to the draft audit and issue a final report with recommendations.

In response to HUD’s findings, Eason said the city also recently hired a temporary independent consultant to work with the city’s economic development department, as well as some of the service providers, to correct some of the mistakes and respond to the draft audit.

The city told HUD it wants to hire another consultant to work with the city over the next year to revamp its HOME program and prevent future errors of this magnitude, he said.

“We realized we can correct some of those things in very short order,” Eason said. “... This is one of the first times the city has made a commitment to take the initiative of our own.”

He said staff turnover contributed to the mistakes and that the city is working to ensure the grant funds will be spent correctly in the future.

Councilman Bryant Nolden, chairman of the council’s grants committee, said he’s pleased with the progress the city is making.

“We’re going to lose some. ... There’s no way we can get around it,” he said. “I’m really happy as we’re moving forward.”